It's time to deliver on the promise of the CFPB's open banking rule

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In July 2010, Congress tucked a small provision into the Dodd-Frank Financial Reform Act, imposing a new mandate on firms that provide financial services to consumers. The mandate requires financial institutions to provide consumers electronic access to their banking account data. The law, called "Section 1033" of the mammoth bill, also gave the newly created Consumer Financial Protection Bureau the authority to issue a rule implementing that mandate. More than thirteen years later, the CFPB finally released its proposed rule.

The proposed rule offers a solid foundation, yet its impact is limited. The original statute's wording is expansive, requiring all consumer financial services firms to provide consumers with access to their data, except those explicitly exempted. However, the recent draft of the rule is restricted in scope, applying only to credit cards, checking accounts and digital wallets. To truly align with the statute's broad intent, the CFPB should consider broadening the rule's reach, including entities like payroll providers, Electronic Benefits Transfer accounts and billing companies. Greater data coverage would benefit more consumers and fulfill Congress' original objectives.

Section 1033 of the Dodd-Frank Act received little attention when President Obama signed it into law along with the rest of the sweeping bill. The creation of the CFPB, the imposition of caps on debit interchange for large banks and the remaking of the mortgage industry overshadowed it. Comprehensive summaries of Dodd-Frank from major law firms and even Senate Democrats did not mention it. How the language even made it into law was mysterious. The consumer fintech industry, as it exists today, did not then exist. Products on which hundreds of millions of people now rely, including Venmo, Square Cash, Propel, Earnin and Chime, had yet to launch. 

Yet, Section 1033 was as far-reaching as anything else in the bill. By 2010, it was clear that technology could eliminate tedious data entry and reconciliation for the banking public. Intuit had acquired Mint, an early fintech pioneer, and had begun enabling consumers and small businesses to track transactions automatically. Consumers and small businesses that provided Intuit with account credentials for banking and wealth management accounts could reconcile their bank accounts and calculate their tax obligations without manually entering transaction details.

Thirteen years after the passage of Section 1033, American consumers deserve more than the ability to delegate access to electronic data related to their deposit accounts, credit cards and electronic wallets. The market has already delivered those benefits. 

Regulation and compliance

CFPB open-banking plan would restrict sale or misuse of consumer data

The Consumer Financial Protection Bureau's proposal would give consumers a legal right to grant third parties access to financial data for a specific use, but firms cannot sell the data or use it for their own benefit — including by feeding it into algorithms or artificial intelligence.

By Kate Berry

October 19

Consumers have clearly benefited from giving third parties access to their account information, making it easier to switch account relationships. Even those who don't switch benefit from new services that guard against overdrafts and other bank-imposed charges. This trend has led to notable declines in overdraft revenues as the impacts of open banking gain popularity. Moreover, since checking accounts reflect a person's financial health, real-time transaction and balance information can aid lenders in responsibly extending credit to those who can afford it while avoiding burdening those nearing financial distress.

The consumer demand landscape is evolving, with a growing interest in granting innovators access to a broader range of financial data, including payroll data, EBT and bill payment information. Like data from checking accounts and credit cards, access to these new data points can enhance competition, reduce unnecessary fees and widen financial service access, including credit. 

The CFPB plays a crucial role here. Market dynamics that influenced traditional financial service providers might not similarly impact payroll companies, EBT processors or billers, primarily because consumers often don't get to choose these service providers. Unlike consumers' free market leverage in choosing banks or credit card companies based on data access, this influence doesn't extend to payroll and EBT services, underscoring the need for clear regulatory guidance. 

Thirteen years is a long time to wait for anything. Urging the CFPB to expand its current proposal could further prolong this period. Fortunately, the language of the statute largely solves that problem. It is self-executing. In the absence of a new CFPB rule, the law mandates that all financial institutions under the umbrella of the Dodd-Frank Act provide electronic data access to consumers and their agents. On this dimension, no rule is preferable to a limited one. Having waited this long, we can afford to wait a bit more to include meaningfully more consumer data.